How I report the sale of MLP shares in Turbo Tax. I sold all shares.

[nexchap]

@jigo The general rule for wash sales would be to treat the repurchase as 3 different lots, each one adding back the holding period for the lots they replaced:  so the first 22 units replace the 6/20 units and pick up the days from 6/20 to 11/22, the next 22...., etc.  Here's a useful primer on "Matching Rules":  https://fairmark.com/investment-taxation/capital-gain/wash/wash-sale-matching-rules/

[jigo]

@nexchap, thanks for the concise answer.

I was on the phone with my broker, Fidelity, discussing a flagged wash sale, which I'll muse about in a bit, and was told their software uses the midpoint of the oldest and newest lot for holding period adjustment in the case where multiple lots are sold in a single order and trigger a wash. I suppose this is okay too?

Interested in brokerage dating of lots acquired through PTP distribution reinvestment? Read on brave soul.

Fact:
Shares were acquired through reinvestment of distributions 32 days after a sale for a loss. The broker, Fidelity, flagged this as a wash sale.

Question:
Why was the transaction flagged a wash sale, the repurchase was more than 30 days after the sale for a loss?

Answer:
"There are two dividend reinvestment plans (DRIP) available at Fidelity, the DTC Discount Plan and Fidelity Dividend Reinvestment Service (FDRS). Eligibility for the DTC Discount Plan is determined by the issuing company and cannot be changed by Fidelity or the client. Securities ineligible for the DTC Discount Plan automatically reinvest through FDRS.

Under FDRS, Fidelity identifies all clients that own the dividend-paying security and then goes to the market 2 business days before the payable date to acquire the additional shares needed to facilitate dividend reinvestment for our clients. The reinvestment price is determined by the average share price for the shares purchased, and shares are allocated to client accounts on the dividend payable date in proportion to the number of shares the client owned as of the dividend record date."

DBA, DBC, and I assume most, if not all, PTPs don't qualify for DTC. This means my shares are reinvested using FDRS and dated the payable date - 2, though not acquired by me or reported to the partnership until the payable date. Example: the payable date is 3/24, Fidelity's records and eventual 1099-B date this lot 3/22, and partnership records show the lot acquired on 3/24.

This seems right if I squint. The partnership uses the date I acquired, so all their calculations will be correct. Regarding DRIP and dating, I'm fuzzy on the mechanics, but I think I'm effectively gifted the shares that were purchased at payment date - 2 and the broker retains the distribution; there is no brokerage statement generated for the transaction, though veneer is posted to the account on payment date to show I "traded" the distribution for the shares. In this case, it makes sense to use the payment - 2 date when assessing for washes.

[nexchap]

@jigo "their software uses the midpoint of the oldest and newest lot for holding period adjustment in the case where multiple lots are sold in a single order and trigger a wash. I suppose this is okay too?"

I don't have any information to confirm or deny this, but I'm skeptical.  As an example, On Mar 10 you sell 1 share that's 10 years old, and 99,999 shares that are 2 days old.  On Mar 20, you buy back 100,000 shares, triggering a wash sale on both lots.  They'd use the midpoint (5 years) as the new holding period for those 100,000 shares?  That makes no sense, so unless there's an IRS provision somewhere that says OK, I'd suggest keeping your own records (your broker isn't penalized for providing a 1099 that's not accurate, and you're on the hook for any tax errors).

[GoodShip]

Hello, appreciate your continued valuable input in this forum.

I just received a k1 from Cypress Environmental LP, and the cover letter says the partnership did not qualify for MLP status in 2022 because of insufficient qualifying income., and thus units were were exchanged for shares on 1/01/2022. The transaction schedule has no typical ord gain, costbasis or other items. Just the date of the exchange, 1/1/2022. The rest of the K1 is all zero, everything. I has  passive Loss carryover of (79K) from previous 2021 for this partnership.

In 2022, the company  filed for bankruptcy, and I sold all my shares for a loss. My questions are 3 fold, if you can help.

First, can I still use the passive loss carryover of (79K) in 2022. This was a complete disposition , all units were exchanged per the k1 to shares on 1/1/2022,  then I sold all in 2022. Can I use the passive loss carryover to offset other ordinary gains, from other partnerships,  in my return?

Second, should I  use zero as the ordinary gain on exchange of units in TT, the sales schedule has no numbers whatsoever other than units exchanged.

And  finally, is there any adjustment to basis needed on Form 8949, as they were sold as a "corporation" in 2022, for a loss.  Like I said the sales schedule and the k1 are all zeros

Thanks.

[nexchap]

@GoodShip If this was an exchange from a partnership status to a regular corporate status, and your K-1 was marked as "final", then you'd handle the exchange as though it was in 2 steps:

1. A sale of Cypress:  the suspended losses would be released, it sounds like Ord Gain is 0, but you have to adjust your basis using the sales schedule, or your own calculations.
2. A purchase of this new stock:  the purchase price of the stock should match the sales proceeds you used in step 1.

But if this was an exchange between one partnership to another, that's not a complete disposition:  your suspended losses stay suspended, just as part of the new partnership.  They'd then be released when you made that sale.

Either way, you get to release the suspended losses and use them to offset your other income.  The only difference between the two scenarios is whether there are two 1099-Bs (one for 1/1/22, and the 2nd for your final sale) or just one.  And either way, you have to adjust basis:  from what you originally paid, until the sale, you received $79,000 in tax benefits.  So your basis has dropped by at least that much (and probably more assuming you received any cash distributions).